Macroeconomic expectations, central bank communication, and background uncertainty: A COVID-19 laboratory experiment
In: Journal of economic dynamics & control, Band 143, S. 104460
ISSN: 0165-1889
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In: Journal of economic dynamics & control, Band 143, S. 104460
ISSN: 0165-1889
SSRN
In: C.D. Howe Institute Commentary 633
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In: C.D. Howe Institute 633, December 2022
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In: Journal of Monetary Economics, Band 117, S. 760-780
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Working paper
In: Journal of Monetary Economics, Forthcoming
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Working paper
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Working paper
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In: Journal of economic dynamics & control, Band 82, S. 21-43
ISSN: 0165-1889
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Working paper
In: American economic review, Band 104, Heft 3, S. 1047-1062
ISSN: 1944-7981
This paper experimentally investigates whether money illusion generates substantial nominal inertia. Building on the design of Fehr and Tyran (2001), we find no evidence that agents choose high nominal payoffs over high real payoffs. However, participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task. The cognitive challenge of this task explains the majority of the magnitude of nominal inertia; money illusion exerts only a second-order effect. The duration of nominal inertia depends primarily on participants' best response functions, not the prevalence of money illusion. (JEL C91, D21, D83, E31, E41, E52, L11)
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Working paper
In: Journal of economic studies, Band 42, Heft 6, S. 972-1004
ISSN: 1758-7387
Purpose
– The purpose of this paper is to explore the ability of monetary policy to generate real effects in laboratory general equilibrium production economies.
Design/methodology/approach
– To understand why monetary policy is not consistently effective at stabilizing economic activity, the author vary the types of agents interacting in the economy and consider treatments where subjects are playing the role of households (firms) in an economy where automated firms (households) are programmed to behave rationally.
Findings
– While the majority of participants' expectations respond to monetary policy in the direction intended, subjects do form expectations adaptively, relying heavily on past variables and forecasts in forming two-steps-ahead forecasts. Moreover, in the presence of counterparts that are boundedly rational, forecast accuracy worsens significantly. When interacting with automated households, updating firms' prices respond modestly to monetary policy and significantly to anticipated marginal costs and future prices. The greatest deviations in behavior from theoretical predictions arise from human households (HH). Households persistent oversupply of labor and under-consumption is attributed to precautionary saving and debt aversion. The results provide evidence that the effects of monetary policy on decision making hinge on the distribution of indebtedness of households.
Originality/value
– The author present causal evidence of the effects of potential bounded rationality on agents' consumption and labor decisions.